In The News

Selma Hepp weights in on China’s Currency Cap

China’s currency caps hurt Chinese home buyers in the U.S.

The Chinese middle class, both in China and in the United States, stands to lose the most by China’s newly imposed currency restrictions. The group most affected may be the many Chinese buyers who already live and work in the United States and rely on money from China to purchase a home.

Of foreign buyers, Chinese investors made up the largest group — 53 percent — and the largest investment — $31. 7 billion — in U.S. residential real estate in 2017, continuing a trend for a fourth straight year. While 12 percent of the international buying activity occurred in California, the number of Chinese real estate buyers here has been declining since 2014 and stood at only 3 percent of all foreign buyers in 2016. The new Chinese government restrictions on currency outflows may further slow this buying activity.

Certainly buyers who rely on money coming from China will face more hurdles, which may discourage them from moving forward with a purchase. However, in the competitive home-buying environment of the Bay Area — exacerbated by a scarce supply of homes for sale — there may be no notable impacts.

Wealthy buyers have routinely found ways of investing abroad via corporate assets and access to sophisticated market tools, and that will not change.

The Chinese government formalized rules on overseas investments on Aug. 18 that have informally been in place for the last couple of years. These rules are intended to curb increasing capital outflows to what the government calls “irrational” acquisitions, that is, investments in industries ranging from real estate to hotels to entertainment. Banned outright are investments in core military technology, gambling, adult entertainment, and investments contrary to national security.

On the other hand, investments that promote cooperation with other Asian and European countries and enhance China’s technical standards, research and development, oil and mining exploration, agriculture and fishing are formally encouraged.

The Chinese government seems to be concerned with the effect of accelerated capital outflows on the country’s currency and potential risks to the financial sector, particularly due to potential investment loss. It is likely that accelerated investment in “trophy” properties abroad, as well as more recent interest in film, entertainment and sports companies, caused the Chinese government to apply restrictions to these investments.

If lodging, commercial and real estate investment trusts are included, Chinese investment in U.S. real estate actually has accelerated, even while overall overseas investment in real estate and other assets by Chinese individuals and companies has declined 40 percent year-to-date from 2016. However, 2016 was the peak year for Chinese investment, at almost $250 billion. The decline still leaves Chinese overseas investment at one of the highest levels in history.

Generally, with the Communist Party leadership transition later this year, the government wants a better handle on potential risks and challenges in overseas investments. Thus China is examining deals that have gone wrong. The new controls, implementation of which started last year, already has helped stabilize China’s capital account and foreign exchange reserves, and consequently the yuan has been devalued.

A currency transfer cap on individual investors has been in place for some time. This is, to some extent, reflected in the decline of Chinese home buyers in California over the last few years. Some experts believe that, in the long run, U.S. residential and commercial real estate will remain an important asset for Chinese investors.

Selma Hepp is the chief economist and vice president, business intelligence, for Pacific Union International in San Francisco.

Chinese investment in U.S. real estate

Between April 2016 and March 2017

$31.7 billion

(both residents

and nonresidents)


properties purchased

Buyer’s profile

Chinese buyers

in the Bay Area

86% bought with all cash (and the majority bought in Silicon Valley).

32% of other foreign buyers bought with all cash.

$2.1 million, median sales price for a home

$1.275 million, the median sales price for other foreign buyers

1 in 3 bought a primary residence

2 in 3 other foreign buyers bought a primary residence

1 in 3 Chinese buyers said a top school hearby was a must-have

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